Quick Bite - Bata India; Maintain 'BUY'; TP Rs805 - PINC Research

We visited a few large 'Bata India' stores in Mumbai recently and met the store managers. We observed that these stores are doing really well with respect to sales and footfalls. Post our visit, we continue to believe that Bata is an attractive long term buy at CMP of Rs688. At CMP the stock trades at 1-year forward P/E of 23.9x.

Few key findings from our discussion with store managers:

1) The stores we visited recorded average revenue growth of ~21-29% YoY. In particular one store manager said that in CY2010 the store revenue was Rs54mn which increased to Rs70mn (29.6% growth YoY ) in CY11.

Gross average per store sales for BATA in CY10 was Rs11.5mn (PINCe) which in our opinion is likely to go up to Rs15mn per stores by CY13. Post our store visit, we believe that the company will be able to exceed our growth estimate of 17% for CY12 and is likely to show robust revenue growth of ~20-23% for CY12. We may revise our numbers post H1CY12 result.

2) The company increases the price of its products once or twice each year in the range of 5-15%. The price revisions usually come at year end especially after the discount season ends.

The company puts up discount sale at year end when it tries to clear non-moving items, slow moving items and all shoe units with production date of more than a year. New inventory which then comes into the stores have a higher price tag. The company never reduces the price of its products (except during discount sale). We believe this is a good strategy which helps company to push sales at year end and reduce working capital. It also helps to introduce new design and styles in the market which are in fashion.

3) Store sales usually sag in March every year but pick up again in April due to demand for kids footwear due to school re-opening season.

As per our understanding Q1 is the worst quarter for the company w.r.t sales while Q2 is best with respect to sales. However, Q4 is best with respect to margins.

4) Women shoe/chappal sale is also gaining pace off late. "Marie Claire" women's brand is seeing higher demand as compared to other women brands. The company also distributes other brands like 'Reebok' and 'Dr Scholls' to cater to a wider customer base.

We believe that the women's section will gain further pace going forward.

VALUATIONS AND RECOMMENDATION

We maintain BUY rating on the stock with a target price of Rs805 (17% upside) at 1-year forward P/E multiple of 21x.

Source : Equity Bulls

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